I wasn't asking if the accounts were legitimate; I'm asking if the rollover process itself was legitimate, meaning all the applicable IRS rules and regulations were followed. If the rollover wasn't done correctly, that would be a problem. This is one reason that if at all possible, a trustee-to-trustee (direct) rollover should be the process used. The possible problems (and the bad consequences) will be greatly reduced if the actual funds don't go through your hands when they are rolled over. I've got to think that in your case, the distribution code on the 1099 would show rollover, making the FAFSA and financial aid people happy, if the first company had sent the money directly to the second company, instead of giving the whole thing (less any required tax withholding) to the beneficiary.
Have you tried contacting the first company, and asking for a corrected 1099 with a rollover distribution code based on what was actually done with the funds? If you haven't done that, it might be worth a shot.